Technology

The global chip shortage is starting to have major real consequences

The 2nd generation Epyc chip, manufactured by Advanced Micro Devices Inc. (AMD), will be arranged for a photo on Wednesday, August 7, 2019 during a launch event in San Francisco, California, United States.

David Paul Morris | Bloomberg | Getty Images

The severity of the global chip shortage has increased many times over in the past few weeks and it now looks like millions of people will be affected.

As technology has advanced, semiconductor chips have moved from computers and automobiles to toothbrushes and clothes dryers – they are now lurking under the hoods of a surprising number of products.

However, demand for chips continues to outpace supply, and automakers are no longer the only companies feeling the crisis.

South Korean tech giant Samsung said last week that the chip shortage is affecting TV and device production, while LG admitted the shortage posed a risk.

“Due to the global semiconductor shortage, we are also having some effects, particularly with certain set products and display production,” said Ben Suh, head of investor relations at Samsung, in an interview with analysts.

“We are discussing delivery schedules with retailers and major sales channels so that we can match the components to products that have a higher urgency or priority for delivery.”

Koh Dong-jin, Samsung’s co-CEO and head of mobile, said at an annual general meeting in March that the supply and demand for chips in the IT sector are facing a serious imbalance. At the time, the company said it could skip the launch of the next Galaxy Note smartphone.

LG said it is “closely monitoring the situation as no manufacturer can be free from the problem if it is extended,” according to the Financial Times. LG didn’t immediately respond to a CNBC request for comment.

Everyday devices endangered

The production of low margin processors, such as those used to weigh clothes in a washing machine or to toast bread in a smart toaster, is also affected. While most retailers are still able to get their hands on these products right now, they could run into problems in the months to come.

Even dog washes are suffering, according to the Washington Post. CCSI, which makes electronic dog wash cubicles in the village of Garden Prairie, Illinois, was recently informed by its circuit board supplier that the usual chips were not available, according to the report.

The company, which did not immediately respond to a CNBC request for comment, was reportedly offered another chip. To do this, however, the company had to adapt its circuit boards, which increased costs.

“This particular problem affects every aspect of manufacturing from small people to large conglomerates,” said President Russell Caldwell. “We literally have cornfields around us … not much here.”

Many companies – especially those in China that are facing sanctions – are increasing their inventories of in-demand chips to escape the storm, but that makes it even more difficult for other companies to source chips.

The auto industry is still hardest hit

The automotive sector, which relies on chips for everything from computer management of engines to driver assistance systems, is still hardest hit. Companies like Ford, Volkswagen and Jaguar Land Rover have closed factories, laid off workers and reduced vehicle production.

Stellantis, the fourth largest automaker in the world, said Wednesday that the chip shortage worsened in the last quarter. Richard Palmer, the chief financial officer of the company formed through the merger of Fiat Chrysler and Peugeot maker PSA, warned the disruption could last until 2022.

According to a Bloomberg report on Thursday, some automakers are now skipping high-end features due to the lack of chips.

According to reports, Nissan is leaving navigation systems out of cars that they would normally have, while Ram Trucks no longer equips its 1500 pickups with a standard “smart” rearview mirror that monitors for blind spots.

“Ram has currently stopped including the option in all Tradesman, Bighorn, Rebel and Laramie models due to limited electronic components available for this option,” a Ram spokesperson told CNBC, adding that the company said plans to resume offering the option later this year.

Elsewhere, Renault no longer puts an oversized digital screen behind the wheel on certain models. Nissan and Renault didn’t immediately respond to a CNBC request for comment.

Car rental companies are also feeling the impact from being unable to purchase the new vehicles they want, according to a Bloomberg report on Tuesday. Hertz and Enterprise, which have traditionally benefited from buying and renting new vehicles in bulk, have reportedly bought used cars at auction instead.

“The global shortage of microchips has impacted the ability of the entire car rental industry to receive new vehicle orders as quickly as we’d like,” a Hertz spokesman told CNBC.

Hertz said it “complements” its fleet by buying used, low-mileage vehicles from auctions and dealerships.

A company spokesman said the global chip shortage has “impacted the availability of new vehicles and delivery across the industry at a time when demand is already high.”

Complex problem with many moving components

The world’s largest chip maker, TSMC (Taiwan Semiconductor Manufacturing Company), said on Sunday it believes it could catch up with automobile demand by June.

Patrick Armstrong, CIO of Plurimi Investment Managers, told CNBC Street Signs Europe on Tuesday that the schedule was very ambitious.

“If you listen to Ford, BMW and Volkswagen, they have all pointed out that there are capacity constraints and they cannot get the chips they need to make the new cars,” he said, adding that he believes it will Will take 18 months.

The managing director of the German chip manufacturer Infineon said on Tuesday that the semiconductor industry is on uncharted territory.

“I’ve never seen the current situation in which all industries are booming,” Reinhard Ploss told CNBC’s “Street Signs Europe”.

Ploss said it was “very clear that it will take time” before supply and demand are brought back into balance. “I think two years is too long, but we will definitely see that it will last until 2022,” he said. “I think that additional capacities will come … I expect a more balanced situation for the next calendar year.”

Technical sovereignty

Nations are now forced to think about how to increase the number of chips they produce. The vast majority of the world’s chips are made in China, while the US is the second largest producer.

The European Commission, the EU’s executive branch, has said it wants to build chip manufacturing capacities in Europe to become more independent of what it sees as critical technology.

Europe currently accounts for less than 10% of global chip production, although that is an increase from 6% five years ago. She wants to increase that number to 20% and is looking into whether she can invest 20 to 30 billion euros (24 to 36 billion US dollars) to make it happen.

The US tech giant Intel has offered to help, but allegedly wants public subsidies of 8 billion euros for the construction of a semiconductor factory in Europe.

Pat Gelsinger, CEO of Intel, met with two EU commissioners, including Thierry Breton, in Brussels last Friday, after meeting German ministers the day before.

“We are asking both the US and European governments to make it competitive here compared to Asia,” Gelsinger said in an interview with Politico Europe, in which he was quoted as looking for around 8 billion dollar subsidies.

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Katherine Clark